Now Austria refuses ‘to play ball’ on rate parity

Austria has become the latest country to ban rate parity clauses in contracts, joining France and Germany.

The move was welcomed by operators, but The European Technology and Travel Services Association (ETTSA), which was launched in 2009 to represent and promote the interests of global distribution systems (GDSs) and travel distributors, said that it was “gravely concerned” by the ban.

Christoph Klenner, secretary general of ETTSA, said: “Despite repeated offers from our side, the Austrian government, which initiated the changes, declined to engage or meet with our sector. This legislation was passed without a proper impact assessment, and without broad consultation of affected stakeholders. Such a regulatory process runs the risk of overlooking some of the legislation’s ramifications.”

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The organisation said that the new rules were in breach of EU competition and internal market law, “as they jeopardise the functioning of Europe's digital single market.” The organisation is now considering a filing a formal complaint with the EC against Austria.

The European Commission is currently reviewing rate parity with the help of its member states. In the UK, the CMA extended its deadline for responses to a questionnaire sent to a “large sample of hotels in the UK” as part of the joint monitoring project in partnership with the EC and nine other competition agencies in the EU.

The project is looking at how changes to room pricing terms and other recent developments have affected the market. In particular, whether the removal by Expedia and Booking.com of ‘most-favoured nation’ clauses last year affected the market.

Last year saw Expedia and Booking.com agree, after talks with the European Commission, to waive rate parity clauses for five years. Expedia said that this offered hotels and consumers “an effective pan-European solution.” Hotels objected at the time that the agreement did not allow them the chance to offer discounted rates on their own sites.

Industry's Take

Commenting on Austria’s action, Neil Baylis, competition partner at law firm K&L Gates, said: “One view is that the rather cosy deal that the Commission conjured up with the big players is now under serious pressure, as Germany, Austria, Italy and France refuse to play ball and want to take a tougher, more consumer friendly, stance. It is clear that uncertainty will be the order of the day for some time. Interesting also that only in Germany does the matter appear to have reached the courts.”

The end of November saw the Paris Court for Commerce reinforce the terms of the Law Macron, which was adopted last August and banned parity clauses. It also declared void clauses in the hotel contracts of Booking.com regarding rankings based on the level of commission and the speed of its payment.

Clauses preventing hoteliers from having direct contact with their guests were also declared void.

Christian de Barrin, CEO of hotel operator body HOTREC, said: “The recent decisions in France and Austria are positive steps towards fairer and more transparent conditions in the online travel market; although a lot remains to be done to stop unfair commercial practices in the B2B relationships.”

"From a European perspective, more and more countries should feel encouraged by these new French and Austrian examples to limit the dominance of online platforms and to reduce the imbalances for the benefit of consumers and the mostly small and micro-sized European hotels alike,” added Markus Luthe, chair of HOTREC’s Distribution Task Force.

The most striking decision to date has been in Germany, where authorities ruled that so-called Most Favoured Nation clauses violated German and European competition law. At the beginning of this year, the country’s Bundeskartellamt ruled that Booking.com must change best-price clauses in its contracts in German, labelling them “uncompetitive.”

The case of rate parity is not as clear as ‘us’ and ‘them’ with some of the global operators seeing the benefits of the clauses. In a blog over the summer, David Kong, CEO of Best Western Hotels & Resorts, said: “Let’s be realistic: How many hotels or brands provide a unique experience that is truly differentiating? Most of us can create a memorable experience, but not a distinguishable experience. So if the answer to the question is most of us likely cannot provide a truly unique and distinguishable experience, such that we don’t need OTAs, then we need to be honest with ourselves. Perhaps we do need rate parity so the OTAs cannot take advantage of us. To decide whether rate parity is good or bad for us at this time, we need to assess if the original objectives have changed."

Kong went on to cite TravelClick data, which said that in the second quarter of 2015, OTA bookings increased by 9.7 percent, while bookings through hotel websites increased by only 5.8 percent.

"OTAs are significantly outpacing traditional brand distribution channels in terms of bookings," Kong continued. "[They] have broadened their appeal to consumers and because of their market share, they are becoming much more powerful. Rate parity eliminates the threat of a hotel being undercut by an OTA or a 'race to the bottom' with both sides constantly lowering rates to win market share.”

Hotels have fought back by using their loyalty programmes to offer discounted rates to members booking direct, a workaround to the agreement reached between Expedia, Booking.com and the EC. The most high profile of these is Hilton Worldwide, which launched the Stop Clicking Around campaign. At the company’s recent investor day, it confirmed that loyalty programme members were driving 55 percent of occupied rooms, up 7 percent on the year.

“What it all boils down to in the end is what owners again want is net profitability. Our owners are better off as a consequence of what we've done," Hilton Worldwide President & CEO Chris Nassetta told analysts.

The owners’ view on the discounts remains to be clarified, with some operators acknowledging a short-term hit as a result of the rates. In the meantime, member states in Europe are taking matters into their own hands, running the risk of creating a hodgepodge of legislation as the EC fails to keep up with the changing environment.

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.

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